Home > Journals > WMBLR > Vol. 6 (2015) > Iss. 2 (2015)
William & Mary Business Law Review
Abstract
This article critically examines the concept of negotiable instruments as applied to modern residential mortgage promissory notes and argues that such notes no longer satisfy the statutory definition of negotiability under Article 3 of the Uniform Commercial Code (UCC). Roy D. Oppenheim and Jacquelyn K. Trask-Rahn trace the historical development of negotiability, from its origins in seventeenth-century England to its transformation under American banking practices. They demonstrate how the addition of undertakings such as prepayment provisions, collateral conditions, and incorporations of mortgage agreements undermine the fundamental attributes of negotiability. The authors analyze the “holder in due course” doctrine, showing how it has facilitated consumer abuse and predatory lending practices by insulating financial institutions from borrower defenses. Particular attention is given to the standard Fannie Mae and Freddie Mac promissory notes, which contain numerous provisions that render them nonnegotiable despite their continued judicial enforcement as negotiable instruments. The article calls on the judiciary to reject the legal fiction of negotiability in mortgage notes and to apply Article 9 and basic contract law instead. Such a shift would maintain liquidity in the secondary mortgage market while introducing transparency and consumer protection.